RCom fund-raising has cheered the Street

RCom fund-raising has cheered the Street

While Idea raised Rs 3,000 crore (Rs 30 billion), RCom has reportedly raised Rs 6,100 crore (Rs 61 billion), 80 per cent of which was through a qualified institutional placement and the rest from promoters. While intense competition continues in the telecom sector, especially in rural markets, and given the Reliance Jio overhang, analysts say investors are betting big on the upside from data growth.

Of RCom's India telecom revenue, 23 per cent is from non-voice services. The company has additional capacity to capitalise on the rise in demand.

RCom fund-raising has cheered the Street

RCom is hoping its infrastructure deals with Reliance Jio and others, as well as adequate spectrum, will translate into lower costs (compared to peers) relating to capex and spectrum in the coming auction.

The capital-raising is a positive, as it will reduce RCom's consolidated net debt of Rs 40,177 crore or Rs 401.77 billion (as of March-end) by 15 per cent.

Analysts, however, say the company needs to do more, as its consolidated FY14 interest costs, at Rs 3,191 crore (Rs 31.91 billion), were higher than its operating profit of Rs 2,108 crore (Rs 21.08 billion).

The company is expected to save about Rs 800 crore (Rs 8 billion) in interest costs, largely by repaying its high cost (12-13 per cent) rupee debt from the proceeds of the latest offering.

While interest cost savings will offset the 15 per cent equity dilution, at current levels, operating profits will barely be enough to service the reduced interest outgo.

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Image: The fund raising exercise by RCom is welcomed by industry watchers.Photographs: Rupak De Chowdhuri/Reuters

RCom fund-raising has cheered the Street

However, what could help the company is securitisation of tower assets (estimated at Rs 5,000 crore or Rs 50 billion by analysts), stake sale in Globalcom (Rs 6,700 crore or Rs 67 billion), real estate (Rs 6,000 crore or Rs 60 billion) and sale of the DTH business (Rs 1,800 crore or Rs 18 billion), which are pending despite many attempts. It is expected some of these will fructify this financial year.

While analysts are scaling up their target prices marginally, most continue to have 'sell' ratings on the stock. A re-rating will depend on the company reducing its debt further and, more importantly, improving its operational performance.

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Image: RComm will scale up operations after raising funds for the company.Photographs: Reuters